Federal Register: November 26, 2008 (Volume 73, Number 229)
DOCID: fr26no08-68 FR Doc E8-28021
DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
Docket ID: [Docket No. RM07-20-000]
NOTICE: NOTICES
DOCID: fr26no08-68
DOCUMENT ACTION: Notice Terminating Proceeding.
SUBJECT CATEGORY:
Fuel Retention Practices of Natural Gas Companies
DOCUMENT SUMMARY:
The Federal Energy Regulatory Commission is terminating its
notice of inquiry regarding its policy on the inkind recovery of fuel
and lost and unaccountedfor gas by natural gas pipeline companies and
will consider any changes to the application of such policy in individual cases.
Effective Date: November 26, 2008.
SUMMARY:
Fuel Retention Practices of Natural Gas Companies,
DOCUMENT BODY 2:
Issued November 20, 2008.
SUPPLEMENTAL INFORMATION
Before Commissioners: Joseph T. Kelliher, Chairman; Suedeen G. Kelly, Marc Spitzer, Philip D. Moeller, and Jon Wellinghoff
1. On September 30, 2007, the Commission issued a Notice of Inquiry
concerning its current policy on the inkind recovery of fuel and lost
and unaccountedfor gas by natural gas pipeline companies.\1\ The
Commission sought comments on whether it should change its current
policy to provide pipelines a greater incentive to reduce their fuel
use and lost and unaccountedfor gas and to minimize pipeline over
recoveries of these costs. For the reasons discussed below, the Commission is terminating this proceeding.
\1\ Fuel Retention Practices of Natural Gas Companies, FERC Stats. & Regs. ] 35,556 (2007) (NOI).
I. Background
2. A detailed discussion of the Commission's current policy regarding inkind fuel retention by natural gas pipeline companies is contained in the NOI and will not be repeated here. Briefly, interstate natural gas pipelines frequently require that customers contribute in kind a small percentage of the volumes of natural gas tendered for transportation service to provide fuel for compressors and to make up for lost and unaccountedfor gas. Each pipeline states the percentage of gas it retains in its tariff.
3. The Commission established its current policy concerning a
pipeline's inkind recovery of fuel use and lost and unaccountedfor
gas in ANR Pipeline Company (ANR).\2\ In its January 2005 order in the
ANR case,\3\ the Commission stated that pipelines have two options to
recover these costs. The first option is to establish a fixed fuel
retention percentage in a general Natural Gas Act (NGA) section 4 rate case, and leave that
[[Page 72040]]
percentage unchanged until the pipeline files its next general section
4 rate case. That option is consistent with the Commission's general
ratemaking policy, set forth in section 284.10(c)(2) of the
Commission's regulations,\4\ that pipelines must design their rates
based on estimated units of service without any type of tracker or
trueup mechanism. That policy provides pipelines an incentive to
minimize costs, by allowing them to retain any cost overrecoveries
between rate cases, while putting them at risk for cost under
recoveries.\5\ The second recovery option is for the pipeline to
include in its tariff a mechanism permitting periodic changes in its
fuel retention percentage outside of a general section 4 rate case, as
allowed by section 154.403 of the Commission's regulations.\6\ ANR held
that, if a pipeline chooses the second option, it must include in its
tariff a mechanism to trueup any over and underrecoveries of fuel, absent agreement otherwise by all interested parties.
\2\ ANR Pipeline Co., order on compliance filing, 108 FERC ]
61,050, order inviting comments, 109 FERC ] 61,038 (2004), order on
reh'g and compliance filing, 110 FERC ] 61,069, order on reh'g and compliance filing, 111 FERC ] 61,290 (2005).
\3\ 110 FERC ] 61,069 at P 1828.
\4\ 18 CFR 284.10(c)(2).
\5\ See Canyon Creek Compression Co., 99 FERC ] 61,351, at P 14 (2002).
\6\ 18 CFR 154.403.
4. In ANR,\7\ the Commission also left open the possibility that a
pipeline could include an incentive mechanism in a fuel cost tracker,
if the pipeline made the proposal pursuant to the Commission's
incentive ratemaking policy. The Commission's current policy on
incentive rates is set forth in Alternatives to Traditional Costof
Service Ratemaking for Natural Gas Pipelines (1996 Incentive Ratemaking Policy Statement).\8\
\7\ 110 FERC ] 61,069 at P 39.
\8\ 74 FERC ] 61,076, at 61,23738 (1996).
5. In the NOI, the Commission sought comments on whether it should change its current inkind fuel retention policy for the purpose of (a) minimizing pipeline overrecoveries of fuel and lost and unaccounted for gas or (b) providing pipelines with a greater incentive to reduce their fuel use and lost and unaccountedfor gas, for example by permitting pipelines with fuel trackers and trueup mechanisms to include a profit or loss sharing mechanism.\9\
\9\ NOI at P 2326.
6. Thirtytwo parties filed comments in response to the NOI.\10\
Shippers and endusers generally argued that the Commission should
require all pipelines to use a tracker with a trueup in order to
prevent overrecovery of costs. The pipelines, however, argued that the
Commission should retain its current policy and continue to permit
pipelines to choose whether a fixed retention percentage established in
a section 4 rate case or a tracker is best suited to their particular
circumstances. Most parties stated that including some form of
incentive mechanism in a tracker trueup mechanism could encourage
greater efficiency. However, the parties asserted that the Commission
should consider such mechanisms on a casebycase basis rather than imposing any generic requirements.
\10\ The parties are listed in Appendix A.
II. Discussion
7. After carefully reviewing the comments, the Commission has determined to terminate this proceeding and consider any changes to the application of the Commission's policy concerning fuel recovery in individual cases.
8. As described above, a number of nonpipeline commenters contend that the Commission should require all pipelines to recover their fuel costs through trackers with trueup mechanisms in order to minimize pipeline overrecovery of fuel costs. However, the Commission would have to act under NGA section 5 to require pipelines which currently have fixed fuel charges established in general section 4 rate cases to adopt trackers and trueup mechanisms. In order to do that, the Commission would have to find that all fixed fuel charges are unjust and unreasonable and that the only just and reasonable method for pipelines to recover fuel costs is through a tracker with a trueup mechanism. The commenters have failed to provide the Commission a basis to take such generic action under NGA section 5.
9. Recovery of fuel costs through a fixed charge established in a
general section 4 rate case is consistent with the Commission's general
ratemaking policy for open access pipelines, set forth in section
284.10(c)(2) of the Commission's regulations, that pipelines design
their rates based on estimated units of service, without any type of
trueup mechanism.\11\ The nonpipeline commenters' only basis for
requiring all pipelines to recover their fuel costs in a manner
contrary to that policy is that (1) fixed fuel charges present too much
potential for pipelines to overrecover their fuel costs and (2)
remedying such overrecoveries through complaints under NGA section 5
is too difficult.\12\ However, the courts have insisted that the
Commission not ``compromise section 5's limits on its power to revise
rates.'' \13\ Requiring pipelines to recover their fuel costs through a
tracker and trueup mechanism based solely on the alleged difficulty of
remedying cost overrecoveries under NGA section 5, and without any
other independent policy justification, would be contrary to the
court's holding that the Commission may not order pipelines to make
section 4 filings in order ``to avoid the `insufficient protection'
afforded by section 5, i.e., to avoid its procedural constraints.'' \14\
\11\ In Order No. 436, the Commission explained that this
requirement means that the pipeline is at risk for underrecovery of
its costs between rate cases, and may retain any overrecovery. This
gives the pipeline an incentive both to minimize its costs and
maximize the service it provides. A cost tracker would undercut
these incentives by guaranteeing the pipeline a set revenue
recovery. Pipeline Service Obligations and Revisions to Regulations
Governing SelfImplementing Transportation; and Regulation of
Natural Gas Pipelines After Partial Wellhead Decontrol, Order No.
636, FERC Stats. & Regs. ] 30,939, order on reh'g, Order No. 636A,
FERC Stats. & Regs. ] 30,950, order on reh'g, Order No. 636B, 61
FERC ] 61,272 (1992), order on reh'g, 62 FERC ] 61,007 (1993), aff'd
in part and remanded in part sub nom. United Distribution Cos. v.
FERC, 88 F.3d 1105 (D.C. Cir. 1996), order on remand, Order No. 636, 78 FERC ] 61,186 (1997).
\12\ Industry Associations at 78 (``Although the Commission and
pipeline customers are entitled to bring Section 5 complaints, such
complaints require the complainant to carry the burden of proof, can
be extremely expensive, and only offer prospective relief.''). See also Ameren, TVA, and Texas Producers.
\13\ Western Resources, Inc. v. FERC, 9 F.3d 1568, 1578 (D.C. Cir. 1993).
\14\ Public Service Commission of New York v. FERC, 866 F.2d 487, 491 (D.C. Cir. 1989).
10. Accordingly, if a shipper believes that a particular pipeline
is overrecovering its fuel costs, it should file a complaint under NGA
section 5, pursuant to the procedures set forth in section 385.206 of
the Commission's procedural regulations. While several shippers
commented that section 5 does not provide an adequate remedy,\15\ in
fact, section 5 complaints have resulted in significantly reduced fuel
charges on several pipelines. National Fuel \16\ and Dominion \17\ are
two examples of how actual or potential section 5 complaints can cause pipelines to reduce their fuel retention percentages.
\15\ See, e.g., comments of the American Public Gas Association at 34.
\16\ National Fuel Gas Supply Corporation, 118 FERC ] 61,091
(2007) (National Fuel) (settlement agreement followed section 5 complaint).
\17\ Dominion Transmission, Inc., 111 FERC ] 61,285 (2005)
(Dominion) (settlement agreement came about in response to potential section 5 complaint).
11. In addition, the changes recently enacted by the Commission to
the financial reporting requirements for natural gas pipelines should
assist shippers who wish to file a section 5 complaint involving fuel
cost overrecovery. In March 2008, the Commission issued Order No. 710,\18\ a
[[Page 72041]]
Final Rule to change the financial forms and reporting requirements for
natural gas pipelines in order to enhance the transparency of financial
reporting by interstate natural gas pipelines and better reflect the
current market and cost information. Among the changes were new
reporting requirements that require natural gas companies to provide
detailed information regarding the acquisition and disposition of fuel
use and lost and unaccountedfor gas.\19\ With this new information,
shippers will be better able to use the section 5 complaint process to address fuel cost overrecovery by a pipeline.
\18\ Revisions to Forms, Statements and Reporting Requirements
for Natural Gas Pipelines, Order No. 710, 73 FR 19389 (Apr. 10,
2008), FERC Stats. & Regs. ] 31,267 (2008), reh'g and clarification, Order No. 710A, 123 FERC ] 61,278 (June 20, 2008).
\19\ Order No. 710 at P 16.
12. Finally, the operation of the interstate pipeline system
involves a significant amount of fuel use and lost and unaccountedfor
gas to deliver supplies to market. Fuel gas charges now make up a
greater percentage of the overall interstate transportation rate than
they have in the past. Such considerations reinforce the need to
improve the efficiency of our existing infrastructure. While the
parties generally commented that fuel savings incentive mechanisms
could be helpful in reducing fuel use and, therefore, fuel costs, they
believed that such mechanisms should be developed by the parties in
individual proceedings. In light of those comments, the Commission will
take a casebycase approach at this time. In a recent order, the
Commission ordered a technical conference to consider a threeyear
experimental fuel incentive mechanism proposed by Texas Gas
Transmission, L.L.C. and what changes, if any, might be necessary or appropriate.\20\ The Commission concludes that casebycase
consideration of incentive proposals will assist in the development of
the Commission's policies concerning pipelines' recovery of fuel costs,
and encourages pipelines to work with their customers to develop these mechanisms.
\20\ See Texas Gas Transmission, LLC, 125 FERC ] 61,134 (2008).
13. For these reasons, Docket No. RM0720000 is terminated.
The Commission orders:
Docket No. RM0720000 is terminated.
By the Commission.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
Appendix A
List of Parties
Ameren Energy Generating Company, Central Illinois Public Service
Company, Central Illinois Light Co., Illinois Power Co., and Union Electric Company (Ameren)
American Chemistry Council
American Gas Association
American Public Gas Association
Apache Corporation
Atmos Energy Corporation
Boardwalk Pipeline Partners, LP, Gulf Crossing Pipeline Company LLC,
Gulf South Pipeline Company, LP, and Texas Gas Transmission, LLC Calpine Corporation
Columbia Gas Transmission Corporation, Columbia Gulf Transmission
Company, Crossroads Pipeline Company, Granite State Gas Transmission, Inc., and Central Kentucky Transmission Company
Dominion Resources, Inc.
El Paso Corporation
Enbridge, Inc. and Enbridge Energy Partners, L.P.
FPL Group, Inc.
Honda of America Mfg., Inc.
Interstate Natural Gas Association of America
Independent Oil & Gas Association of West Virginia
The Independent Petroleum Association of America, The Process Gas
Consumers Group, The American Forest & Paper Association and The American Iron and Steel Institute (Industry Associations)
Kinder Morgan Interstate Gas Transmission, LLC, Natural Gas Pipeline
Company of America, Trailblazer Pipeline Company, and TransColorado Gas Transmission
Louisville Gas and Electric Company
MidAmerican Energy Company and PacifiCorp
Middle Tennessee Natural Gas Utility District
National Fuel Gas Supply Corporation
Natural Gas Supply Association
Northern Natural Gas Company and Kern River Gas Transmission Company The Ohio Oil & Gas Association
Public Service Commission of New York
Sequent Energy Management, L.P.
Spectra Energy Transmission, LLC
Tennessee Valley Authority (TVA)
Texas Independent Producers and Royalty Owners Association (Texas Producers)
Transwestern Pipeline Company, LLC
Williston Basin Interstate Pipeline Company
[FR Doc. E828021 Filed 112508; 8:45 am]
BILLING CODE 671701P
FOR FURTHER INFORMATION CONTACT
Anna Fernandez (Legal Information), Office of the General Counsel, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426, (202) 5026682.